Download SEMINAR Wednesday, 3 february 2010

CBS. 2. September 2015.
"Into the age of non-economics"
By: Joergen Oerstroem Moeller.
Visiting Senior Research Fellow, Institute of Southeast
Asian Studies.
Adjunct Professor, Singapore Management University &
Copenhagen Business School.
Honorary Alumnus, University of Copenhagen.
CBS. 2. September 2015.
Disclaimer:
Power point available at ARC website.
I will not comment on all slides.
And for some slides only say a few words.
In a few cases I will repeat myself – apologize.
Prelude. 1.
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Adam Smith ► economic incentives.
Classic. Capital formation. Interest rate. Supply.
General equilibrium.
Keynes. Consumption. Demand. No general
equilibrium.
Friedman. Monetarism. Inflation targeting.
1950s. Unemployment. 1960s demand pressure. 1970s stagflation – debt no issue. 1980s.
The market reinvented! Deregulation. 1990s everything fine-do not interfere. 2000s bubbles
followed by financial crises and great recession. 2010s debt major issue. Forecasts!!!!
What is economics? Descriptive – instrumental –
normative? Objectivity versus subjectivity?
Prelude. 2.
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Science itself has since the Heisenberg uncertainty principle in
quantum mechanics from 1925 moved away from pure
objectivity towards uncertainty and more inaccuracy. In
scientific terms this is obviously a watershed, but it may be
even more important in implanting the fundamental philosophy
that things are not so certain and accurate as science over
several hundred of years had taught.
Schrodinger’s cat.
In 1958 Norwood Russell Hanson put forward his theory that
what we see is not objective, but that the result of observing
something depends to a certain degree on the observer; what
our senses receive is actually filtered sensory information.
Prelude. 3.
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Kuhn: A scientific revolution occurs, when scientists encounter anomalies
which cannot be explained by the universally accepted paradigm. The
paradigm is not simply the current theory, but the entire worldview in which
it exists, and all of the implications which come with it.
Following Kuhn and Arnold Toynbee (the rise and fall of civilizations),
whenever an economic paradigm is unable to provide useful answers to a
period’s biggest challenges, society will enter a transitional period in which,
sooner or later, it replaces the existing logic and operating system with an
updated and better one. There are two driving forces for moving an
economy or a society from one operating system to another one. Exterior
challenges (the push factor) [book HOW ASIA CAN SHAPE THE WORLD] and the
development of consciousness (the pull factor). Otto Scharmer and Kathrin
Kaufer. Leading from the emerging future. Berett-Koehler publishers, San Fransisco.
I. The TRANSITION.
Mass consumption replaced by mass communication &
plenty/abundance replaced by scarcities.
 Sharing of information ►knowledge ► groups ►
values.
 Burden sharing ► groups ►values ► equality or
more precise fairness.
 Both point to values as the controlling factor.
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Geopolitically. A globalized world where inequalities
among and inside countries are exposed
I. The Transition. A. Mass
communication. 1/6. Economics. Growth.
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Flows of goods, services, and finance reached $26 trillion in
2012, or 36 percent of global GDP, 1.5 times the level in
1990.
One in three goods crosses national borders, and more than
one-third of financial investments are international transactions.
In the next decade, global flows could triple, powered by
rising prosperity and participation in the emerging world and
by the spread of the Internet and digital technologies.
Global flows could reach $54 trillion to $85 trillion by 2025,
more than double or triple their current scale. Mckinsey global
institute, April 2014.
I. The Transition. A. Mass
communication. 2/6. Among PEOPLE.
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Mobile phones 2015 (mio): China 1300, India 960, USA 327,
Indonesia 250, Brasilia 284. Internet access persons China. 668 million (mobile
internet users 525 million).
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Communicate with anybody, anytime, anywhere about
anything. According to a World Bank econometrics
analysis of 120 countries, for every 10-percentagepoint increase in the penetration of broadband
services, there is an increase in economic growth of
1.3 percentage points.
I. The Transition. A. Mass communication.
3/6. Among MACHINES. Source: Samuel J. Palmisano, Chairman, IBM Corporation
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Approximately two billion people now on the Internet. Upwards of a trillion
interconnected and intelligent objects and organisms – the Internet of
Things.
One billion transistors for every human being on the planet.
Intelligence now embedded in the systems that enable services to be
delivered… physical goods to be made and sold
All of this is generating vast stores of information. Estimated that there will
be 44 times as much data generated over the next decade, reaching 35
zettabytes (a 1 followed by 21 zeros) in 2020. Advanced computation and
analytics makes sense of that data in something like real time. This enables
very different kinds of insight, foresight and decision making.
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From internet of things to internet of everything.
I. The Transition. A. Mass
communication. 4/6. Mobilization of knowledge. Politics.
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Knowledge is produced in enormous quantity by countries,
corporations, and communities. How to use it?
Depends on: How open societies are and to what degree
they give access to knowledge. [are societies open for use, transfer, and
application of knowledge?]
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People want to share. But not with everybody! Group
behaviour – common and shared values. Risk: Social
networking divide – you communicate with like-minded.
Key point is whether producers and OWNERS of knowledge
– often institutions – trust individuals with knowledge.
If you do not communicate, you do not exist. If you do not think you do not
exist
I. The Transition. A. Mass
communication. 5/6. Mobilization of knowledge. Economics.
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Cost of producing knowledge not known + Marginal
costs & utility absent. Used again and again, by many people at the same
time, no repair, obsolescence? Increasing returns to scale reinterpreted. City one million cars – one more: User value for purchaser +, user value
of existing cars –. One more mobile phone. User value for purchaser AND existing phones +.
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Price & Market. 1: Internet ► share not own. Uber +
Airbnb. 2: Knowledge + information ► free good.
The incentives to produce knowledge and make it
available are non-economic driving the introduction of
mass communication.
I The Transition. A. Mass
communication. 6/6.
Business model as barrier.
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Information becomes scarce and subject to price
fixing because of commercialization to generate
profits for corporations that erect barriers for
creation and transformation of information. It is
done by controlling transmission. A barrier that
technology + social media is fast undermining
auguring a collapse of the existing economic model.
Corporations will fight this until they die and die
they will!
Neither economics nor the business model can
handle these changes ref Kuhn – world view.
Hotel example from Singapore!!! Resistance to Uber.
II. The Transition. B. Scarcities.
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LESS IS THE KEYWORD.
Food. FAO 40 countries face food shortages, 40% increase in food production to 2030 and 70% to 2070 for status
quo.
Raw materials. Resources.
Energy/oil.
Water. Water stress 2040. WRI: Ratio of withdrawals to supply high for China, India, US, Mexico. Extremely high for
Middle East and North Africa.
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Clean environment. WB: the health costs of air and water pollution in China amount to about 4.3
percent of its GDP. By adding the non-health impacts of pollution, which are estimated to be about 1.5 percent of GDP, the
total cost of air and water pollution is about 5.8 percent.
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They are linked to each other. To feed the population double water use efficiency over
the next twenty years.
II. The Transition. B. Scarcities. 1/2.
Production – productivity.
Industrial society: productivity production per person
per hour. How much MORE could a person produce.
 Future: productivity how much more output we can
squeeze out of one unit of input of resources.
 Total use of resources. Examples:
1) Obsolescence. 2) A chip weighing 2 gram: 600 times
of resources used. Price does not reflect this, based on
raw materials (cheap, extraction costs here and now) and R&D
distributed over millions of microchips. 3) Marks &
Spencer plans to overhaul its supply chain, stop
purchase supplies from one hemisphere to another, may
save the company GBP 175 million annually.
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II. The Transition. B. Scarcities. 2/2.
Production. U – R – I model.
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U-use►Durability, choose commodities to this effect.
R-reuse►Repair (repair industry in US one of the fastest declining industries),
regenerate, remanufacturing and recycle. FRAM!
I-ideas►Innovation + R&D aiming at less use of resources.
Product cycle + life cycle► Total resource use.
3D disaggregation.
McKinsey: potential cost savings in the EU through this model amounts to $US 380 billion
equal to two per cent of GDP.
Waste costs France Euro 140bn per year. 7% of GDP.
Southeast Asia is expected to generate 480 million tons of industrial waste in 2025. That
figure will almost double, to about 900 million tons, by 2050. Requires: new production
methods, new innovation, new thinking, and new price structure.
Generate value. A potential growth machine, but another
kind of growth. Waste becomes precious.
II. The Transition. B. Scarcities. 2/2.
Appendix. Fridge
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Buy a new fridge lower el-consumption. Resource use (RU) ↓.
Add resources uses to produce the new fridge. RU ↑. Total
Resource Use (TRU) ↑.
Option one. Scrapped. RU ↑. TRU ↑. Waste recycled ?
TRU + waste recycled shows resource+waste result. (RWR).
Option two. It is repaired and sold to somebody not having a
fridge. RU ↑. TRU ↑.
That somebody is now able to conserve foods better. RU ↓.
TRU ? Waste of food↓.
In this case TRU depends on the time horizon – durability plus
planned or not planned obsolescence.
Point. Product cycle + life cycle gives a more complicated
result than assumed.
BTW. Datacenters consume up to 1.5 percent of global energy
II. The Transition. B. Scarcities. 1/2.
Consumption. Inside box.
Keynes: Consumption theory – how to get people to consume
more, consumption is the key to all economics.
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Future: How to get people to consume less + change pattern
from materialistic to less materialistic consumption.
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In reality a swing towards
1) Durability as competitive parameter. Label saying likely
durability like today’s labels exp date. Planned obsolescence
no longer.
2) Target for recycling, share of components like today’s labels
displaying calories.
Illustration: A watch. Battery? To wind? Self-winding. Compare
total use of resources over ten years.
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II. The Transition. B. Scarcities. 2/2.
Consumption. Outside box.
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The consumption function:
First. Uncertainty. If consumption is postponed no guarantee it
can take place later. Restrictions on buy a car, car use etc.
Second. More focus on happiness (satisfaction) through nonmaterial consumption e.g. communication. The feel good
factor.
Third. Societal aspect. Global survey 28,000 people. AsiaPacific on top for brands ‘give back to society’ & number one
cause to support: Environmental sustainability. Source: The Global,
Socially-Conscious Consumer, March 2012, The Nielsen Company, http://nielsen.com.
III. The Transition. C. 1/10. Economics. Price
mechanism? Market?
1) Prices not set by supply vs demand but to generate short term corporate
profits.
2) Market does not exists anymore. 1318 corporations control 80% of global
business; 147 controls 40%.
4) Consequence of mass communication: a) Knowledge as a free good being
commercialised – artificial prices. b) People are ready to pay the user value –
not the price to own. They rent to use – not buy to own.
5) A kind of leasing economy. Consumers lease or rent goods or services or
cars or houses for use and only as long as they use them. Corporations own
goods and services! Monopoly of ownership!
Example. Most airlines do not buy an airplane. They rent it even if officially they buy. Managing the entry into
service, operations, maintenance and the transition of aircraft pose challenges to an airline’s core mission. Why
invest in the infrastructure, systems and operations needed to perform these functions? Boeing. GoldCare
III. The Transition. C. 2A/10. Economics. Distribution
wage vs capital. Skills.
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Piketty. Wage vs capital share right concept in industrial age. Wrong
concept now. Knowledge means that marginal product of labour will not
equal the real wage.
Formerly. Technology embedded in capital. Higher quality/technology
higher productivity/higher return to capital. Not to workers even if labour
productivity went up.
Now. Brain power + skills of workforce = combining services/capital ►
product concept ►total factor productivity (TFP) goes up. Higher
remuneration goes to the skills factor neither to labour nor to capital.
Application of technology!
Ref Kaldor’s distribution theory based on different savings rate between
capitalists and workers. Now different skills factor among people. Premium
or discount!
III. The Transition. C. 2B/10. Economics. Distribution
wage vs capital. Skills. Education system.
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Supply/demand of skills. US figures show that if no mismatch growing
equality – if mismatch growing inequality.
US. 35% of employers find it difficult to fill positions because of lack of
APPROPRIATE skills. (technicians, engineers, sales representatives to mention a few).
Europe. Share of graduate workforce in jobs that do not need graduate
skills. (UK 60%, France 25%, Poland 40%, Sweden35% - Germany 10%, Switzerland ˂ 10%. Denmark ˂ 20%).
Top takes a disproportionate share of income. ‘Scarce’ skills: Premium.
Traditional non-graduate middle class + traditional workers squeezed by
influx of graduates suppressing the wage rate condemning ‘workers’ to
unemployment.
Long term unemployment as share from 2007 to 2011. US 10 → 30, UK
22 → 35, France 40, Germany 55 → 48.
III. The Transition. C. 2C/10. Economics. Distribution
wage vs capital. Abuse of skills – distorting the economy.
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Skills means that people earn money not only doing something boosting the
economy, but by offering services that looks like increasing production, but doesn’t –
in reality encroaching on productive sectors.
Extractive and inclusive societies introduced a couple of years ago. More relevant to
look at extractive versus inclusive sectors. 1950 the financial sector in US and UK
accounted for ten percent of GDP. Now approx. 8 percent after ten percent prior to
the financial crisis. Fancy ideas how you can shuffle financial papers around not
contributing to GDP.
The economy rewards those who can ‘commercialize’ services above their value
through corporate capitalism/mutual oligopoly.
One of the reasons this can happen is the lack of price of knowledge, marginal
utility plus increasing returns to scale. Those buying these services have no idea
about their profitability. They are unable to form a comparative analysis whether
this is the most profitable investment for them to undertake.
III. The Transition. C. 3/10. Relative factor prices.
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Industrial age: Era of plenty. Labour force scarce → wage ↑. Commodities
available → prices ↓.
Result: underemployment, pollution, waste of resources. Innovation.
Future. Era of scarcity. Labour forces large → wage ↓: higher
employment, lower remuneration of labour, less waste of resources,
higher quality of the environment. Innovation.
Relative factor prices must change. Prices figure in life cycle. And this is
happening. Wage share is falling. Appendix.
With a lower share of GDP to labour material consumption falls (workers
savings rate lower) – predicted by Marx, but analytical basis different.
OBS. Material consumption cannot any longer be counted on to drive the
economy – China!
III. The Transition. C. 3/10.
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Relative factor prices. Appendix.
Labour’s share of national income. Percent. 1980 to 2012.
The Economist October 4th 2014.
1980 2012
Sweden
62
54
US
59
55
Japan
54
52
Britain (1987)
54
54
China (1993)
60
49
III. The Transition. C. 4/10. Economics. Business model –
corporate governance.
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Corporate capitalism. Economic theory operating with competition not
applicable – economic policies become ineffective. Too big to fall? Maybe.
Definitely big enough to shift costs to the public sector ref how financial
institutions shifted their debt burden to the public over the financial crisis.
State – Business: Symbiosis.
Ownership in the hands of investment funds not interested in running a
corporation but making a short term profit. Common interests for owners
and employees - a cornerstone in the industrial society – does not exists.
Anonymous ownership.
Franchising: People do not know from whom they buy. Example: Of the
4,942 hotels operated by InterContinental it owns just eight. The “assetlight” approach brings in franchising and management fees. Financial short
term, not operating a business. The consumer does not have any idea of
who he/she deals with. Or worse. They think they know, but what they think
they know is false.
Anonymous supplier – as anonymous ownership.
III. The Transition. C. 5/10.
Business model. Private profit
seeking enhanced by shifting costs to the public sector. Four examples.
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1: Financial crisis. Financial institutions shifted losses on non-performing loans to
the public. Result: Due diligence & distinguishing loans with low risks and high
risks not necessary anymore – Detrimental for future investments.
2: Reduce workforce shifting burden to social welfare. Result: Public deficits go
up and so do the tax burden on those who work. What is called ‘churn’ –
higher productivity when workers move from one job to another – becomes
more difficult (they do not jump from one job to another but from job to no
job).
3: Privatize public services-save money on public budget. Postulate better
service & higher productivity. Result: Capital flows out to private investors.
Lower societal productivity. Investment & maintenance?
4: Planned obsolescence forcing consumers to buy new products even if the
existing one could last longer. Result: Material consumption + environmental &
‘resource’ costs goes up. Reform of tax system jeopardized – planned
obsolescence pushes up prices reducing margin for imposing levies.
III. The Transition. C. 6/10.
Economics. Work. People work
if they contribute to GDP as we define it.
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Share of work force in agriculture and manufacturing falls dramatically. The
latest scare cars! Automation! Work does not exists anymore!
The economic rationale reflects partial analysis (short term profit for the
business Sector, decouple from society). 1) Fire workers-market profit goes upcorporate tax goes up, but total tax revenue goes down → different tax rates-social welfare
expenditure up. Burden transferred from private to public sector – deficit on public finances vs
profit in private sector. 2) Same picture for public services-now run by private business ►
‘profit’ + higher ‘corporate’ productivity & lower societal productivity. Conclusion: As long as
the public sector is willing and capable to accept this, a large share of people will be
unemployed.
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Employment to a large degree steered by the education – skills in demand.
Maybe a future approach should be to define work as contributing to
society. Care functions – social welfare.
Denmark 1/3-1/2 of population is engaged in voluntary work. It must have
a value and a price but is disregarded because of short term market view.
GDP.
III. The Transition. C. 7/10.
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Economics. Tax system.
The income tax is based on the notion that ability to produce
measures a society’s wealth. Wrong. Now it is ability to save
resources to maintain them for the future that makes a society
rich.
Do not tax information etc. Taxation is based on the
assumption that it is ‘services’ as defined by the industrial age,
but it is not – it is a free good.
Abolish the income tax and replace it with a tax on total use
of resources. Progressive according to resource use.
III. The Transition. C. 8/10.
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Economics. Sum-up.
Adam Smith: pursuance by the individual for wealth coalesced into higher
wealth for society as a whole because society’s wealth is the accumulation of
individual’s wealth . Wrong. Inequality + in equitable opportunities.
Question: What does it cost to run a country? Three links cut. Consumer market
buyer/seller – production capitalist/worker – business sector corporations/society.
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Burden sharing, doing something for others, and less materialistic
consumption requires mutual trust. Individuals only give up some of their
potential benefits if convinced that others will do the same. If not hang on
and an acrimonious battle of distribution follows, tearing societies apart.
Same line of thinking for sharing of knowledge.
Knowledge and scarcities reduce wage share and increase ‘skills’ share.
Economics as an interdisciplinary analysis steered by values not homo
oeconomicus. Common and shared values point to groups – politics,
economics, ‘institutionalization’ changes. Irrationality shoots down economics.
III. The Transition. 9/10. Facebook! Example.
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Production? What is produced by facebook? What is the cost
of producing it? Marginal costs + marginal utility?
It may stimulate ‘production’ as we know it in other economic
sectors but difficult to estimate.
How many people are employed by facebook?
How much money is paid out to wages compared to money
flowing to the skills factor?
Extractive company or?
What does it tell us about mass consumption vs mass
communication?
Consumer preferences – well being – the need to
communicate.
The drive to be member of a group.
III. The Transition. C. 10/10.
Economics. Irrationality.
Utility theory not working as expected. Broader implications.
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First group was shown a particular type of mug and asked how much they
would be willing to pay for it. Those in the second group were given the
mug and asked how much they would want in order to give it back. The
second group demanded twice as much to part with the mug as those in the
first group were willing to pay for it. Kahneman, jack L. Knetsch and Richard H. Thaler, “Experimental
Tests of the Endowment Effect and the Coase Theorem”, Journal of Political Economy (December 1990).
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Two groups of students chocolate versus apple. The price asked to give it
up higher than the price ready to pay for it.
Taxes on plastic bags are more effective in changing behaviour than
bonuses for reusable bags.
New. Not only price to get something but price to give up something.
Broader perspective: Price for giving up clean environment.
In the 1970s economists admitted that human beings were irrational but for
the purpose of economics it did not matter because it was not systematic.
But they are; they have systematic irrationalities – judged by economics!
Richard Thaler
IV. The Transition. D.
WE MUST THROW AWAY MOST OF ESTABLISHED THEORY AND ECONOMIC
MODELS – BECAUSE ALL OF THEM ARE ANCHORED SOLELY IN ECONOMIC
THINKING.
INSTEAD WE MUST INCREASINGLY USE PSHYCOLOGY, SOCIOLOGY,
ANTHROPOLOGY, STUDIES OF BRAIN BEHAVIOUR AND COMPREHENSIVE
THINKING ABOUT HUMAN BEHAVIOUR.
AND THEN TRY SOMETHING NEW – BIG DATA, DEDUCTION OUT, INDUCTION IN.
IV. The Transition. D. 1/5. Interdisciplinary.
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The anthropologists Boyd and Richerson [http://ndpr.nd.edu/review.cfm?id=3241]
has come a long way towards showing that genes and cultures
coevolves. They say: culture is an adaptation. Human beings like
many animals acquire behavior, even more important the ability to
adapt primarily by watching and learning. The difference between
this learning process for animals and humans is: culture pervades
human behavior and the human mindset. Human learning is also
cumulative contrary to what seems to be the case for animals.
Culture creates social environments for learning selecting or
favoring those who work from those who do not work or work less
satisfactorily. This explains why human beings seek together in
groups and why those that are able to work out how to cooperate
inside groups among individual stand the better chance of surviving
than those who do not.
IV. The Transition. D. 2/5. Interdisciplinary.
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Delton et al shows that current economic models based upon
rationality and selfishness leading to the conclusion that people
are selfish in situations where they do not expect to meet their
counterpart again is not correct. Using computer simulations
they come to the conclusion that not only are people acting
generously when expecting to meet counterparts again – which
could be explained by selfishness calculating to get something
in return or avoid retaliations – but also in a one-shot situation.
Generosity is apparently built into our genes and comes natural
to humans contrary to conventional thinking saying it is a either
calculated selfishness or a result of social norms, behavioral
patterns, or group pressure.
Kilde: Science Daily 25 Juli 2011. http://www.sciencedaily.com/releases/2011/07/110725162523.htm
IV. The Transition. D. 3/5. Interdisciplinary.
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Studies from Yale [Wynn, 2008 and Bloom 2010“Some innate
foundation of social cognition”, in P. Carruthers, S.Lawrence and S. Stich (eds). The
Innate Mind: foundation and the future. Oxford University Press, 2008 ]
watching the reaction of babies six to 12 months
old indicate that some sense of good or evil or
moral judgment may actually be in the genes. The
main idea of the study was to show some figures
climbing upwards a slope and watch the reaction of
babies when other figures tried to help or block.
The babies showed a clear preference for the
helping figures.
IV. The Transition. D. 4/5. Interdisciplinary.
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’The Social Conquest of Earth’ authored by E.O. Wilson,
provides a convincing scientific argument that evolution works
also on group level.
We are not only selfish, says Wilson. Our own survival
depends on the group we belong to, that it functions well and
that explains that genes makes us ’social’.
Inside the group we may behave selfish yes but his studies
show that groups where members cooperate and support each
other has a higher survival rate than groups where the
opposite behaviour dominates.
IV. The Transition. D. 5/5. Interdisciplinary.
Why did Homo Sapiens spread around the world? Source: Curtis W. Marean, Scientific
American August 2015
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A penchant for cooperation with unrelated individuals –
hyperprosociality – is not a learned tendency but instead a
genetically encoded trait found only in Human Sapiens (HS).
Sam Bowles: an optimal condition under which Encoded
Hyperprosociality can propagate is when groups are in
conflict. Groups with higher numbers of prosocial people work
together more effectively and outcompete others and pass
their genes for this behaviour.
Pete Richerson et al: This behaviour spreads best in
subpopulations and competition between groups is intense and
when overall population is small – like what was the case when
HS started to migrate out of Africa.
V. Complexity. E. 1/6.
Complexity: A phenomenon involving multiple components in a dense network of interactions or
relationships, where cause-effect relationships are not clear, stable or predictably repeatable.
Exhibit new patterns and behaviours. Non linearity but random and/or discontinous: Source:
Foresight, a glossary, CSC, Singapore.
Complexity is becoming the new norm for our societies.
Because:
1) Social networking + web → find and combine informations,
not analyze & understand. From specialization to multitasking.
2) Intersectoral and interdisciplinary thinking, teaching, ability
to combine/mix, ability to predict consequences of doing
something in one sector on other sectors.
Losers: Basic research, objectivity. Ref Heisenberg, quantum
mechanics etc. Winners: Ability to do something without really
understanding why and how it functions.
V. Some thoughts about Complexity –
Interdisciplinary&intersectoral Approach. E. 2/6.
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Social sciences = behavioural patterns; reactive, interactive, pre-active.
Analyses and forecasts are anchored in well-known behavioural patterns.
When things do not change, behavioural patterns do not either, forecasts
will be accurate. When they do change, forecasts will miss the target.
Existing modelling are almost ex definitione incorrect in times of change.
Cognitive dissonance. Discrepancy between existing belief and new information or views
that contradict those beliefs. Cannot hold two opposing ideas, individuals tend to reduce
their cognitive dissonance to denying or devaluing new information. Source: Foresight, a
glossary, CSC, Singapore.
Human behaviour depends on – what we see – how we perceive it – how
we react. This is not objective (conclusions drawn today different from
tomorrow), but depends on a variety of parameters of which other
human beings reaction may be the most important one – witness the
analysis of human learning with copying others as the vital parameter.
Ref Heisenberg and Norwood Russell Hanson.
V. Some thoughts about Complexity –
Interdisciplinary&intersectoral Approach. E. 3/6. Grateful to
Louis-Francois Pau who discussed deduction/induction with me.
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Complexity incorporates that different people operate according to different
decision rules. Heterogeneity. Not reflected in economics. Complexity model
simulate how events in a system may unfold bringing out differences – not the same
result. Ref Richard Bookstaber.
All the information needed for any decision or any policy is out there, somewhere in
the mass of information and knowledge. The tricky thing is to put it together to form
a useful pattern and picture. Ask questions, look at goals-instruments and causeeffect – contradictory to now looking for the answer inside established patterns and
inside one or two social sciences.
Big data having access to the whole range of human behaviour collected without
regard to specific disciplines may get the options policy makers need.
The assessment methods of the manifold results from big data analysis becomes
crucial. If we get fx 100 outputs combing the available data how do we evaluate
each one to find those to choose from and how do we choose?
V. Some thoughts about Complexity –
Interdisciplinary&intersectoral Approach. E. 4/6.
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It is much easier to carry out deduction than induction, because science
narrows down alternatives, induction expands them. All the facts for
induction may be there, but not or seldom the context to use them properly
(the facts are often domain specific). This discrepancy pushes us towards
using common sense or organizational theory and they are never accepted
to be objective, or indeed forces subjectivity to be adopted deepening the
distance to objectivity.
Thus it is not “science” and it is not based on ‘theory first –
explanations/realities afterwards’
The ‘missing link’ is inductive methods and even more integrating such
methods in decision making models.
V. Some thoughts about Complexity –
Interdisciplinary&intersectoral Approach. E. 5/6.
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Francis Bacon: Inductive methods must incorporate a technic to classify data and
eliminate hypotheses rejecting possible explanations leaving only one. Observe,
collect all form of data inside or outside the phenomenon we study, classify, set up
tests to see whether the observation is specific or general. If general formulate a
cause-effect through induction.
Before big data scientists pondered on how ‘things’ in their particular science
interacted with each other. If the relevant scientific method confirmed that it was
correct this interpretation was used as a cornerstone for future thinking inter alia in
economics. Sequence was to form a theory then test it and afterwards put data into
this model and it will tell us what is going to happen. Theory ► realities.
Big data reverse the order. First collect the data, then put data together finding out
how they interact with each other. Then form a theory telling why ►realities first,
then theory.
For economics. Hitherto cause→effect one answer. Future – big data combining
many ways of thinking to solve problems – cutting the link to preconceived ideas.
Sequence does not matter.
V. Some thoughts about Complexity –
Interdisciplinary&intersectoral Approach. E. 6/6. A.
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Effect → cause.
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Induction instead of deduction.
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Theory after having digested realities.
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Not any longer domain specific.
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Around 1950 a regression analysis about cigarettes
◄► lung cancer was attacked by another regression
analysis import of apples ◄► divorce rates. Never let
realities stand in the way of a good regression analysis!
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Traffic during rush hours indicator of business cycle.
Available parking lots in business district by satellite
same.
V. Some thoughts about Complexity –
Interdisciplinary&intersectoral Approach. E. 6/6. B.
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For years economists and sociologists have debated
falling birth rates. Hundreds of political steps have
been implemented to raise the birth rate. Professor
Skakkebæk, Medicine: Over decades the quality of
men’s semen has deteriorated mainly because of
chemical substances in the environment!!!
The final word: Because cause-effect is NOT
repeatable something new is called for. Since 2008-2009
economists have looked for the next crisis. Wrong approach. There may a new crisis but it will
not be like the one we saw in 2008-2009.
VI. Conclusion. 1/2.
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Knowledge. 1: Free good. 2: Socialize – not private
value. 3: Increasing returns to scale.
Scarcity. 1: Inbuilt obsolescence out. 2: Waste
neutrality (zero waste). Total recycling.
1: Business less profitable maybe even non-profitable.
Model replaced by smaller groups capable of using
knowledge as a free good and handle scarcity –
both according to social criteria. 2: Work.In 20-30
years time work as we know it now does not exists.
3:New distribution theory.
VI. Conclusion. 2/2.
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Economics is about human behaviour; economic
incentives play a role but by far from the only one
and maybe not the most important one.
Move into interdisciplinary & intersectoral area.
Other social sciences and brain behaviour.
Complexity and big data. From deduction to
induction.
[email protected]
 Author of:
Books. 1) HOW ASIA CAN SHAPE THE WORLD – from
the era of plenty to the era of scarcities. 2011.
2) The Global Economy in Transition. 2013.
3) Political Economy in the Globalized World. 2009.

Articles. 1) Into the Age of Non-Economics. SER. Vol 59. No. 3 (2014).
2) Conventional Economic Theory – A Critique Highlighting Flaws in American
Style Capitalism. SER. Vol 56. No 1. 2011.
3) Values and group behaviour Shape Future Governance. WFR 2015. Vol 7
(1) 4-11.